Business Context and Reporting Period
The filing is a Form 10-Q for Concierge Technologies, Inc., not Marygold Companies, Inc. It covers the three and six months ended December 31, 2014, with comparative periods ended December 31, 2013. The company’s principal operating subsidiary was Wireless Village, doing business as Janus Cam, which sold mobile video surveillance hardware and related installation and support services.
The filing identifies the registrant as a Nevada corporation and a smaller reporting company. The financial statements are unaudited. The filing text contains apparent date inconsistencies, including a signature date of February 17, 2014 despite the reporting period ending December 31, 2014.
Financial Metrics
| Metric | Three months ended Dec. 31, 2014 | Three months ended Dec. 31, 2013 | Six months ended Dec. 31, 2014 | Six months ended Dec. 31, 2013 |
|---|---|---|---|---|
| Net revenue | $380,384 | $513,751 | $800,823 | $1,075,650 |
| Gross profit | $156,102 | $216,957 | $292,654 | $427,298 |
| Gross margin | 41.0% | 42.2% | 36.6% | 39.7% |
| Operating profit (loss) | $15,006 | $(74,874) | $(63,589) | $(173,080) |
| Net loss | $(29,147) | $(74,863) | $(190,780) | $(127,404) |
- Six-month revenue declined 25.5%; management reported combined revenue, including other income and adjustments, of $803,073 versus $1,128,798, a 29% decline.
- Six-month cost of revenue was $508,169, down from $648,352. Management attributed lower gross profit and margins partly to wholesale pricing and higher accessory-component costs.
- Six-month interest expense was $79,764, compared with $6,672 in the prior year. The company also recorded a $48,877 change in the fair value of derivative liabilities and $67,571 of beneficial conversion feature expense in operating cash-flow adjustments.
- Cash and cash equivalents were $86,883 at December 31, 2014, compared with $20,454 at June 30, 2014.
- Total current assets were $414,707, versus $667,904 at June 30, 2014. Inventory declined to $187,696 from $474,034, and accounts receivable declined to $56,080 from $159,047.
- Total liabilities were $1,192,727, compared with $1,381,031 at June 30, 2014. Stockholders’ deficit was $757,538.
- Accounts payable and accrued expenses totaled $750,213, including a $135,000 accrued judgment, $38,252 of accrued interest, and $28,532 of payroll tax liabilities.
- Six-month cash flow was reported as $111,191 of net cash used in operating activities, $69,761 used in investing activities, and $25,000 provided by financing activities. The filing reports a $66,429 net increase in cash during the period.
Material Changes Versus the Prior Comparable Period
- Revenue fell by $274,827, or approximately 26%, for the six-month period. Management attributed the decline to customer cost-cutting, increased competition, and slower-than-expected regulatory adoption of in-vehicle recording devices for taxis and limousines.
- Operating losses improved by $109,491 for the six-month period, but net loss increased by $63,376 because of higher interest, derivative-related expenses, and the absence of a prior-year one-time sales-tax adjustment.
- Installation and support-service revenue increased to $51,710 from $381, partly offsetting lower hardware sales.
- Common shares outstanding increased to 338,235,368 from 240,337,841 at June 30, 2014. Series B preferred shares declined to 5,092,045 from 9,498,409.
- The company converted $53,000 of convertible-debenture principal plus $2,120 of accrued interest into 9,770,247 common shares during the period. The related debenture was paid in full by December 31, 2014.
- Management suspended Janus Cam executive salaries during the quarter pending renegotiation of compensation terms. Loans to management totaled $68,406 at December 31, 2014.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expected losses to be curtailed through increased product sales and believed its operating, financing, and sales initiatives would support operations for the next 12 months. Management cited insurance-related demand for vehicle video recorders and anticipated that regulatory and insurance requirements could improve adoption. It also noted that wholesale sales to an insurance carrier produced lower margins, although installation and maintenance revenue increased.
The financial statements include a going-concern disclosure. The company had an accumulated deficit of $5,084,489 and continued losses, and stated that its ability to continue depends on improving profitability, obtaining financing, maintaining vendor relationships, and successfully competing for customers. Management also acknowledged dependence on timely payments to suppliers, continued product development, and future operating success.
- Convertible debentures and short-term notes created significant refinancing and dilution risk. A $35,000 note issued December 24, 2014 was intended to fund repayment of a debenture maturing in January 2015.
- The derivative liability was $48,877 at December 31, 2014 and was valued using Level 3 models with significant judgment and estimated stock-price volatility of 110.48%.
- The company continued to carry a $135,000 liability related to an expired 2002 default judgment, although management stated the judgment was no longer enforceable absent a new court action.
- Subsequent to the reporting date, the company raised $3.0 million on January 26, 2015 in exchange for 400 million common shares and 32,451,499 Series B preferred shares. The transaction resulted in a change of control, with new investors holding approximately 70% of issued and outstanding shares.
- Subsequent financing proceeds were used to retire $100,000 of December 24, 2014 and January 14, 2015 promissory notes. The company also settled the $204,700 related-party convertible debenture through stock issuance and a $122,000 cash payment.
- The company stated that disclosure controls and procedures were effective and that no material changes to internal control over financial reporting occurred during the period.
Key Facts an Investor Should Verify
- Confirm whether this filing belongs to Concierge Technologies, Inc. or Marygold Companies, Inc., and reconcile the apparent reporting-date and signature-date errors.
- Verify the classification and sign of the reported $111,191 operating cash-flow figure against the underlying cash-flow statement.
- Assess the company’s ability to fund operations given $86,883 of cash, substantial accrued liabilities, the going-concern disclosure, and reliance on short-term and related-party financing.
- Review the terms, settlement status, and dilution impact of all convertible debentures, derivative liabilities, common shares, and preferred shares.
- Evaluate whether the January 2015 $3.0 million financing and change of control were properly reflected in subsequent SEC filings and capitalization tables.
- Assess the sustainability of reported margin improvement, the lower-margin insurance-channel sales, and management’s assumptions regarding regulatory and insurance-driven demand.